This Just In: Upgrades and Downgrades

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best ...
Am I not just talking to myself? Does somebody actually read this column? I wonder... because just a few weeks back, I took the analysts at RBC Capital Markets to task for making an ill-considered endorsement of PotashCorp (NYSE: POT  ) . I suggested that if fertilizer stocks were what appealed to RBC, CF Industries (NYSE: CF  ) offered a much better bargain. And yesterday, what to my wondering eyes did appear?

A report out of that showed Citigroup downgrading PotashCorp -- and Mosaic (NYSE: MOS  ) as well -- and in their place naming CF Industries its Top Pick in the fertilizer-osphere.

Digging up bargains... and duds
Citi reasoned thusly: Fertilizer sales are slowing down, and margins look likely to drop too as increased imports of "phosphate rock" come to market. That's bad news for PotashCorp, which derives more than 70% of its revenue from potash (naturally) and phosphate-based fertilizers. It's particularly bad news for Mosaic, which focuses on phosphates and potash. Accordingly, Mosaic got especially rough treatment from Citi, which downgraded the stock all the way to "neutral."

In this pricing environment, Citi thinks nitrogen fertilizer is the way to go. And if that's the case, CF Industries -- which gets 80% of its revenues from nitrogen fertilizers -- should be the company best positioned to weather the storm. That's with the possible exception of Terra Nitrogen (NYSE: TNH  ) , which I argued last month was the second-best bargain in the fertilizer industry, after CF Industries itself.

But just in case you don't buy Citi's preference for nitrogen over phosphates and potash... there's another great reason to prefer CF Industries (and Terra Nitrogen) over PotashCorp and Mosaic: price.

Valuation matters
Once again, here's how the numbers look for these companies, updated through today:



Est. Growth Rate

Free Cash Flow as a % of Net Income

PotashCorp 13.1 11% 42%
Mosaic 8.9 8% 41%
CF Industries 8.9 17% 175%
Terra Nitrogen 12.6 N/A 98%

P/E and growth rate data courtesy of Yahoo! Finance; free cash flow from S&P Capital IQ. N/A = not available.

Once again, we find CF Industries far and away the best value of the bunch. Not only does CF sport a P/E nearly as low as that of the now-downgraded Mosaic. Not only is it expected to grow faster than any other company in the industry, and twice as fast as Mosaic. CF Industries is also the only company in the industry that's currently generating free cash flow superior to what it reports as net income under GAAP accounting standards. It's the only company -- not to put too fine a point on it -- that's actually cheaper than it looks.

For this reason, I agree with Citi's upgrade, and with its downgrades as well. CF deserves to be a "top pick" for your portfolio. PotashCorp and Mosaic do not.

Looking for a broader-based bet on global economic recovery than just buying a bunch of fertilizer makers? Your wish is our command. Read the Fool's new report, for free, and we'll clue you in to three ETFs set to soar during the recovery.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 356 out of more than 180,000 members. The Motley Fool owns shares of Citigroup and has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1752859, ~/Articles/ArticleHandler.aspx, 10/24/2016 10:48:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,233.77 88.06 0.49%
S&P 500 2,151.44 10.28 0.48%
NASD 5,303.85 46.45 0.88%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 10:32 AM
CF $25.49 Down -0.43 -1.66%
CF Industries Hold… CAPS Rating: ****
MOS $24.43 Up +0.12 +0.47%
Mosaic CAPS Rating: ****
POT $16.42 Up +0.01 +0.06%
PotashCorp CAPS Rating: ****
TNH $108.15 Up +0.70 +0.65%
Terra Nitrogen CAPS Rating: ****